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Here Is How Modi’s PLI Scheme Can Help Indian Economy To Beat China

Amid the economic recovery, Prime Minister Modi last year said that this scheme is expected to boost India's production by $520 billion in the next five years.

Photo Credit : Reuters

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In a positive development, the World Bank has said that Prime Minister Narendra Modi government’s Production-Linked Incentive (PLI) scheme is going to help India's economy grow at 8.7 per cent in the next financial year 2022-23 and will beat contemporary markets including China. 

The report titled Global Economic Prospects has estimated India’s growth to 8.7 per cent in fiscal year (FY) 2022-23 and 6.8 per cent in FY 2023-24. "To reflect an improving investment outlook with private investment, particularly manufacturing, benefiting from the Production-Linked Incentive (PLI) Scheme, and increases in infrastructure investment," the World Bank mentioned in the report. 

Amid the economic recovery, Modi last year said that this scheme is expected to boost India's production by $520 billion in the next five years. 

"The PLI scheme is a bold step forward for the manufacturing sector. Explicit incentives for production and sales rather than on the input side through tax or capital subsidies is a better incentive structure. Also, the sectors chosen are a mix of sectors in which India has high import dependence and sectors where India could potentially become import-dependent over the next decade," Senior Economist at Kotak Institutional Equities, Suvodeep Rakshit. 

Rather than incentivising traditional sectors where India has a comparative advantage, the PLI scheme focuses on sectors that will be driving global manufacturing over the next few decades. If executed well and with an increase in local value addition, India could see large players emerging in some of the sectors, added Rakshit. 

According to the experts, India is likely to add 1.7 per cent to its GDP by 2027 via these schemes and will generate new jobs, amid the ongoing Coronavirus pandemic. As per industry predictions, this scheme by the Centre can add revenue to GDP. The immediate effect of these plans is probably going to be bigger on labour (an expected 2.8 million new positions) than on capital spending (assessed at $28 billion). There is probably going to be critical upstream movement subsequently, driving further gains in jobs and spending. 

"The COVID-19 pandemic will leave some scars in certain sections of the economy. However, over the long term if policies continue towards ensuring a more open economy as well as strengthening India’s inherent advantages, there are significant gains that the economy can experience and help in removing the scars left by the pandemic," said Rakshit.  

The competitive world: 

The World Bank report also mentioned that the PLI scheme is also going to help the Indian economy beat China and grow faster than emerging markets. China, Bangladesh and Indonesia are likely to grow at 5.1 per cent, 6.4 per cent and 5.2 per cent respectively as compared to India amid the economic recovery, the World Bank said. 

"The idea is not to compete with China but to strengthen India’s local manufacturing capabilities in a few crucial sectors. Rather than replacing China, the scheme could be seen as gaining from the China+1 strategy that many MNCs are shifting to. Utilizing both the domestic economic size and global exports markets, Indian companies through this scheme can gain significantly in terms of scaling up," said Rakshit. 

Rakshit added that on the economic front, a continuation of reforms for factors of production (capital, labour, land), enabling innovation and levering technology, investment in public infrastructure, and opening up the economy based on inherent strength will be required over the next few years to ensure dominance in the global arena.  

In order to enhance production and exports, Prime Minister Modi led central government launched the PLI scheme in March 2020 with incentives of Rs 1.97 lakh crore over a five-year period for 13 key sectors like electronics, telecom, auto parts, advanced batteries, pharmaceutical drugs, and solar energy components. 


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